Thursday, July 27, 2006

Social Security Reform - Courier Times June 1, 2005

Many of us believe that each of us has our own Social Security account for which we have rights to. The United States government set up Social Security so that, beginning on November 24, 1936, "checks will come to you as a right". However, in 1937 the court ruled in the Helvering vs. Davis case that Social Security was not an insurance program, saying that the Social Security taxes collected are to be paid into the Treasury like internal revenue taxes and are not earmarked in any specific way. Later, in 1960, the court ruled in the Flemming vs. Nestor case that Congress may, due to ever changing conditions, cut benefits, raise the retirement age, raise the tax, eliminate payments altogether or whatever else is deemed necessary. The moral question that one might ask is: Why, in a free society, am I required by law to set aside a portion of my earnings for retirement? Under this premise, there should also be a Congressional mandate for food, housing and education. After all, many people do diligently put a small amount of money aside each month in mutual funds (or other types of accounts) with spectacular results and it's as easy as making a credit card payment. The answer is that most adults do not plan for retirement. They rely on Social Security. If Social Security goes broke, as predicted, we'll have to set up some sort of welfare system for everyone who didn't plan. Personally, I'd rather empower people now than somehow resolve the pending crisis later on. Under the proposed plan, a small percentage of our income will be placed in an investment account, if we so desire. Many oppose this stating that Social Security wasn't set up to be an investment account. There are typically 3 ways to accumulate wealth: Hit the lottery, receive an inheritance or invest (even a small amount consistently over time). The stock market is often associated with risk, but investing $100 per month, for example, every month allows you to buy more in a low market and have a greater value when the market is high. It all balances out and is called "dollar-cost-averaging". Diversification is also key (which is why many prefer mutual funds). Putting all of your dollars into Enron, for example, could spell disaster and did for many. Risk itself is a misnomer. Generally, time is what reduces (or eliminates) risk. We all must educate ourselves on the basics of investing. There are countless books and websites that are available to us (and you're never too old). President Bush's plan will introduce millions of Americans to the basic concepts of investing. Many will become empowered with the knowledge required to set up additional accounts (retirement and otherwise) as well. These and the government initiated accounts will have a widespread stimulating effect on our entire economy. I would hope that the proposed "private accounts" will be managed by private companies. I would also hope that certain safeguards be built in to eliminate the opportunity for corruption with maximum penalties for those who abuse the system. I'm hopeful for reform. Personally, I think that Social Security was doomed from the start and I'm saddened to see many of our elected officials putting politics over people (counting on the gullibility of the uninformed). I'd approve of President Bush's plan regardless of who thought of it. It's based on sound, solid principles. The only risk, then, is if the market somehow gets wiped out. Money won't matter anyway if that happens, but history shows only upward trends with no indications of disaster. Clearly, the greatest security is in taking the risk.